Hotel tax lawsuit nears end (copy)

The travel website Expedia is one of several online travel companies that will pay the Horry County, the town of Hilton Head and the cities of Charleston, North Charleston, Columbia, Isle of Palms, North Myrtle Beach and Myrtle Beach a collective $4.4 million in unpaid business license taxes. 

About 30 million tourists descend on the Palmetto State each year, enjoying lavish seafood dinners and pricey plantation tours.

But the largest chunk of their vacation budget, according to the most recent report, is spent on sleep. A whopping $3.1 billion was spent on hotels in South Carolina in 2016. 

Budget-savvy tourists often lean on online travel companies, such as Priceline and Expedia, to save money. These companies operate by scooping up vast chunks of hotel rooms on the cheap and later renting them out to customers at a higher rate. 

That strategy poses a problem for South Carolina counties, towns and cities that depend on tourism-related tax revenue.

In a big win for local governments, the city of North Charleston and several other municipalities will receive a roughly $4.4 million payout from online travel companies that refused to pay business license taxes. 

North Charleston City Council voted last week to accept their share; about $398,700. The money will be dispersed after all of the other plaintiffs agree to their shares. 

The lawsuit against parent companies Expedia, Travelocity and Priceline and their subsidiaries was filed in Circuit Court in Charleston in 2014 — a byproduct of a previously successful lawsuit regarding lost hotel accommodations taxes.

Each of these settlements bring North Charleston and other cities one step closer to regulating what are increasingly nebulous digital economies, City Attorney Derk Van Raalte said. 

"It's always interesting to watch business, tax laws and regulatory requirements adjust to new technology," Van Raalte said. "Here we dealt with the internet, but generations ago similar shifts no doubt occurred as mail order businesses emerged."

Litigation around the regulation of online travel companies began to spread across the country a decade ago when local governments discovered that websites such as Hotwire and Expedia were basing their tax payments on the wholesale prices of the rooms. (The online companies have argued that only the rate they negotiate with hotels is taxable.)

Since then, state and local officials in 34 states have filed as many as 90 lawsuits against online travel companies, according to independent tax policy nonprofit Tax Foundation

In 2013, the accommodations tax settlement garnered Charleston County, Aiken County and the cities of Columbia and North Charleston a collective $2.2 million. Individual settlements reached $1.16 million; $8,431; $393,689; and about $240,600, respectively.

Plaintiffs in the business license tax lawsuit include Horry County, Charleston, Columbia and North Myrtle Beach, but spokespeople for each declined to be interviewed. Spokespeople for additional plaintiffs Isle of Palms and Hilton Head did not respond to repeated emails and voicemails. 

The city of Myrtle Beach has not finalized its settlement, but spokesman Mark Kruea told The Post and Courier he expects it to be somewhere between $300,000 and $400,000. 

"It levels the playing field for our local businesses," Kruea said. "They pay a business license fee for them to do business here, so it makes it equal for everybody." 

Payouts will vary across the plaintiffs based on their respective tax rates and volume of business done there.

Each municipality charges a "base" business license tax — the amount owed to the city, town or county after the company makes its first $2,000 in sales. For every further $1,000 in sales, the company pays a much smaller tax. 

For example, the city of Charleston's base tax is $115.68, and its tax rate is $6.80. Once a business reaches the $2,000 mark in sales, it owes the city $115.68 in business license tax. From that point forward, each time the company passes the $1,000 sales mark, it owes the city an additional $6.80. 

Charleston has the highest rates of all the municipalities named as plaintiffs in the case. Myrtle Beach has the second-highest tax rate among the municipalities with a base rate of $145 and a continuing tax rate of $5.85 per $1,000.

North Charleston's rate fell in the middle of the pack with a base rate of $90 and a tax rate of $4.40 per $1,000. 

After leaders vote to accept all the designated settlements, the companies have 20 days to pay up.

Chloe Johnson and Joey Cranney contributed to this report.

Reach Hannah Alani at 843-937-5428. Follow her on Twitter @HannahAlani.